Israel’s Finance Minister Avigdor Liberman has presented a proposed change to the Real Estate Taxation Law to the Inter-ministerial Committee on Legislative Matters for approval.
One of Liberman’s reforms is meant to cool down the housing market which is in high demand targeting foreign residents who invest in real estate.
Foreign residents will lose their tax exemption on rental revenue earned on leased apartments. By removing the incentive to invest in an apartment in Israel, more units will become available to local buyers.
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According to the Tax Authority, foreign residents in Israel own 83,000 apartments, almost 40,000 of which are in Tel Aviv and Jerusalem.
Foreign residents also will be obliged to pay appreciation tax on the difference between the purchase and sale price of an apartment – a 25% tax on the difference between the purchase and sale price.
Liberman proposes increasing tax on the purchase of four or more units and reducing from 24 to 12 months the overlap time during which purchasers are permitted to own two properties.
At the moment, a homebuyer who purchases a second house can wait up to 24 months before selling their primary residence and still be considered the owner of a single residence for the purposes of paying different taxes.
This time was originally 18 months between 2016 and July 2021 but was increased to 24 months last year. Liberman is now attempting to reduce it to 12 months.
Liberman is also proposing to change the property purchase tax brackets, such that buyers of less costly flats pay less tax and buyers of more expensive units pay more.
The Plan
Homebuyers will be excluded from purchase tax on flats up to NIS 1.93 million under Liberman’s legislation, up from the current cap of NIS 1.8 million.
For units priced between NIS 1.93 million and NIS 2.33 million, the purchase tax will be 3.5 percent (currently NIS 1.8 million and NIS 2.14 million).
Purchase tax would increase to 5% between NIS 2.33 million and NIS 3.1 million (it is currently 8% between NIS 2.14 million and NIS 5.15 million), then to 8% between NIS 3.1 million and NIS 5.3 million.
Purchase tax will be increased to 10% from NIS 5.3 million, up from NIS 18.4 million currently.
